Macroeconomic Policy for Full and Productive Employment & Decent Work for All: Sri Lanka Country Study Dushni Weerakoon & Nisha Arunatilake Institute of Policy Studies of Sri Lanka
Introduction • Around 8 million individuals are economically active • Amounting to about half the working age (10 plus) population • About 94% of them are employed 1990 * 2000* 2009* Population (‘000 persons) 10 plus 11,574 13,564 15,398 6,001 LF ('000 persons) 6,827 7,572 52 LFPR (% of population) 50 49 5,047 Employed Population ('000) 6,310 7,140 15.9 Unemployment rate (% of LF) 7.6 5.7 44 47 46 Employment-to-Population ratio 2 Source: DCS; Note: Excludes N & E Institute of Policy Studies of Sri Lanka
Unemployment rate has come down … but, 18 16 14 12 10 8 6 4 2 0 Unemployment rate (%) -Unemployment (UE) rate has steadily comedown over the last two decades 3 Institute of Policy Studies of Sri Lanka
But, unemployment rate is high amongst - the educated and the young 25% 25% 20% 20% Unemployment rate Unemployment rate 15% 15% 2000 2000 10% 10% 2009 2009 5% 5% 0% 0% Below O/L Passed O/L Passed A/L More than 15-19 20-24 25-29 30-39 40-59 60+ A/L Age group Education level Unemployment rate is still high Amongst the educated, especially those with (only) school education Amongst youth 4 Institute of Policy Studies of Sri Lanka
Unemployment rate is high amongst - females and those outside the WP Unemployment rate by province Unemployment rate by province and sex 12% Total 10% 20% SaP WP 15% 8% 10% 5% UP CP 6% 2000 0% 2009 4% NCP SP 2% NWP EP 0% 2000 Male 2000 Female Total WP CP SP EP NWP NCP UP SaP 2009 Male 2009 Female -Unemployment rate is higher for females -Unemployment rate is higher outside the Western Province -The reduction in unemployment has not been uniform across provinces 5 Institute of Policy Studies of Sri Lanka
Drop in UE rate is partly due to slow LF growth 8000 60 7000 50 6000 5000 40 4000 30 3000 20 2000 10 1000 0 0 Labour force ('000) Employed Population ('000) LFPR (%) Employed/population (%) Unemployed ('000) • The drop in unemployment rate is partly due to the slow LF growth • Employed to population ratio has remained constant overtime 6 Source: LFS data, excludes N and E provinces Institute of Policy Studies of Sri Lanka
Slow LF growth partly explained by departures for foreign employment Departures for foreign employment, by Departures for foreign employment manpower levels 300000 300,000 250000 250,000 200000 200,000 150000 150,000 100000 100,000 50000 50,000 0 0 Total Male Total Female Total Total 1994 2000 2008* • Gross annual outflow of workers has increased substantially overtime • The number of male migrants are increasing • The proportion of skilled migrants (SM) are small, but increasing ( SM influences LF 7 more) Source: SLBFE; Note: *Provisional Institute of Policy Studies of Sri Lanka
Where are the employed working? 100% Employed, by Occupation Status and Sector (2009) 11 13 90% 80% 100% 70% 90% 29 80% 28.4 60% unpaid family worker 70% own account worker 60% 50% 50% employer 40% 40% Private employee 30% Public employee 20% 30% 10% 0% 20% 42.1 42.9 Employee Employer Own Unpaid Total account family 10% worker worker 13.4 15.2 0% Formal Informal 2000* 2009* -Majority (62%) are working in the informal sector -More than 40% are own acc and unpaid family workers (proportion has not changed over time) -The proportion of public employees have increased overtime 8 Institute of Policy Studies of Sri Lanka
Job Protection and Unemployment Insurance (UI) Public sector High level of job protection. (1.1 million) Civil service pension scheme (SCPS) - Non contributory, eligible to a pension Formal private Restrictions on termination of employment (TEWA, 1971), sector and considerable compensation (int’l comparisons) (1.8 million workers) Retirement benefits and survivors benefits under Employers Provident Fund - Mandatory, Contributory, Lump sum at retirement Budget 2010 – ‘Employees’ Pension Fund’ Informal Some protection for livelihood related investments private sector Some ad hoc public works opportunities post disasters (tsunami, (4.7 million conflict) workers) Budget 2010 – Citizens’ Pension and Insurance Fund’ Institute of Policy Studies of Sri Lanka
Informal sector workers are more likely to be working poor Working poor by employment status (%) WP 35 30 SaP CP Govt/semi-govt 25 employee 20 15 Private sector 10 employee 5 Employer UP SP 0 Own account worker Unpaid family worker NCP EP NWP Informal sector workers are more likely to be working poor. 10 Source: HIES 2006/07 data Institute of Policy Studies of Sri Lanka
Malnutrition Maternal malnutrition (% of women aged 15-49) Child Malnutrition (% of children below 5 years below 2SD) Colombo 30 Monaragala Gampaha Colombo Matale 25 Batticaloa 50 Kegalle Gampaha Ratnapura Kalutara 20 40 Ratnapura Puttalama Monaragala Kandy 30 15 20 10 Trincomalee Kandy Badulla Matale 10 5 Polonnaruwa 0 Nuwaraeliya 0 Nuwaraeliya Ampara Anuradhapura Galle Hambantota Kalutara Puttalama Matara Kurunegala Hambantota Polonnaruwa Anuradhapura Trincomalee Batticaloa Ampara Badulla Matara height-for-age weight-for-height weight-for-age Kurunegala Kegalle Galle Source: Department of Census & Statistics, DHS 2006/07 • Gaps in provision, socio-economic conditions (education level, income level, etc ) and knowledge on health and community health seeking behavior are the main reasons behind these disparities Institute of Policy Studies of Sri Lanka
Better skills are needed for more productive employement Employed, by sector and education 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 Below O/L Passed O/L Passed A/L More than A/L Below O/L Passed O/L Passed A/L More than A/L Below O/L Passed O/L Passed A/L More than A/L Agriculture Manufacturing Services -Only 15% of employed have finished high school -Better education is needed for more moving to more productive employment -Tertiary and vocational training needs to improve 12 Institute of Policy Studies of Sri Lanka
Summary • Unemployment rate has decreased overtime • But – amongst some group UE rate is still high amongst the • The drop in unemployment is partly explained by slow growth of the LF – Increasing outflow of workers a reason (especially skilled workers) • Majority of the employed are in the informal sector • The proportion of informal sector workers have changed little overtime • Better skills and education is necessary for employment in more productive sectors • Policies are needed to – promote opportunities formal productive employment … – And, improve employability 13 Institute of Policy Studies of Sri Lanka
Resilient growth despite instability • Resilient growth despite costly conflict GDP Growth – 5% average GDP growth 10 – decline in unemployment 8 6 • But, economy underperforming – Lack of political stability imposed 4 % by conflict 2 – Lack of related policy stability 0 from high fiscal & other costs -2 -4 • Experience was of significant 2000 2002 2004 2006 2008 2010 macroeconomic volatility Agriculture Industry Services GDP growth Institute of Policy Studies of Sri Lanka
Economic instability harms investor confidence Fiscal Trends • Fiscal deficits averaged 8-10% 2000 2002 2004 2006 2008 2010 of GDP 0.0 120 -2.0 100 -4.0 80 % of GDP % of GDP • Rising public debt to GDP ratio -6.0 60 -8.0 40 – Peaked at 105.6% in 2002 -10.0 20 -12.0 0 Budget deficit Public debt • High and volatile inflation Inflation and Interest Rates 25 – Swing from 22.6% in 2008 to 20 3.4% in 2009 15 % 10 • Mirrored in interest rate trends 5 0 2000 2002 2004 2006 2008 2010 Inflation rate Interest rate 15 Institute of Policy Studies of Sri Lanka
Limited policy space in times of crises • Persistent twin deficit on current External Payments account 2000 2002 2004 2006 2008 2010 0 140 – Continuous depreciation of the 120 -2 exchange rate 100 % of GDP -4 80 Rs/$ – Depreciated by 40% between 60 -6 2000-08 40 -8 20 -10 0 Current account deficit Exchange rate • Macroeconomic environment deterrent to long term investment • Encourages employment in informal/contractual arrangements – Erosion of real wage gains • Instability has seen Sri Lanka periodically approach the IMF – Most recently in February 2009 Institute of Policy Studies of Sri Lanka
Post-conflict phase of rapid growth anticipated • Since 2006, two clear objectives behind economic policy framework – Ensure balanced growth – Support lagging sectors of production • Policy priorities to achieve objectives focused primarily on – Rapid investment to improve infrastructure services – Aimed to connect urban/rural and develop conflict-affected regions • Confident of achieving medium term GDP growth in excess of 8% – Clear implications for employment, and – Broader socio-economic development outcomes Institute of Policy Studies of Sri Lanka
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